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Transcript of Challenges of the Sri Lanka’s Petroleum Industry by R. H. S. Samaratunga Secretary, Ministry of...
Challenges of the Sri Lanka’s Petroleum Industry
byR. H. S. Samaratunga
Secretary, Ministry of Petroleum Industries
1
Challenges of the Sri Lanka’s Petroleum Industry
• Global Scenario in Brief
• Sri Lanka’s Petroleum Industry Structure
• Demand, Supply and Challenges
2
Challenges of the Sri Lanka’s Petroleum Industry
Global Scenario
Consumption• Global : 90/mb/day (2011)• OECD : 50% (appox)• North America: 24%
Production• OPEC: 37% North America: 15%• Russia: 11% Saudi Arabia: 10%
3
Challenges of the Sri Lanka’s Petroleum Industry
• Petroleum product prices: increasing trend• Short term demand: price inelastic• Current scenario:- Weaker demand in EU
- Supply side uncertainties
- Additional supplies
- Downward stock adjustment
4
US
$/B
bl
Brent Crude Oil Prices 1997 - 2012
5
Challenges of the Sri Lanka’s Petroleum Industry
Sri Lanka’s Petroleum Industry• Import dependent petroleum consumer• Prior to nationalization: oligopoly of imports/distribution• 1961 - creation of state monopoly• 2003 - end of state monopoly and creation of duopoly (CPC
and LIOC)• Island-wide presence• Many players in several petroleum product markets:
bunkering, lubricants• Case for regulating the market: products quality, services
quality maintenance and enforcement • Employment 600-700 (1970s); now 6000-7000
6
Challenges of the Sri Lanka’s Petroleum Industry
7
Period Products Market
structure
Market players
Prior to 1961 All products Oligopoly Caltex, Mobil, Shell
1961-2003 All products Monopoly CPC
2003 to date Petrol, diesel,
kerosene, bitumen
Duopoly CPC, LIOC
Market Structure of Petroleum Product Distribution
Challenges of the Sri Lanka’s Petroleum Industry
• PG was a private monopoly, nationalized and again privatized
• Presently a duopoly market - Litro (govt.); Lauhfs
(private)
• Both are import dependent to a larger extent
8
49%
10%
31%
10%
2000
55%
6%
33%
6%
2010
Transport
Industrial
Power Generation
Other
Petroleum Products Consumption by Sector
9
Challenges of the Sri Lanka’s Petroleum Industry
Demand, Supply and Challenges• Importer of refined products: beginning till late 1960s • Only refinery commissioned in 1969• Refinery met the country requirement in total for about a
decade• Since then a larger part of key products/total demand for
kerosene from the refinery• Currently about third of the country requirements met from the
refinery
10
Challenges of the Sri Lanka’s Petroleum Industry
• Rising domestic demand: petrol, diesel, fuel oil• Fuel oil demand: depends on the rain- inverse
relationship• Declining demand: kerosene
11
YearGrowth Rate (%)
Petrol Diesel Kerosene Fuel Oil
1990 - - - -
1995 -8.34 57.81 12.41 8.65
2000 32.49 79.46 5.03 26.04
2001 7.07 2.64 -3.67 -0.68
2002 21.13 0.73 11.05 9.91
2003 10.85 -6.46 -27.52 -14.76
2004 12.52 21.43 28.38 -0.71
2005 27.54 19.39 -6.71 68.68
2006 -5.78 4.19 -3.23 -13.81
2007 16.29 4.05 -34.91 -10.11
2008 4.75 -9.59 -5.93 0.68
2009 0.05 -1.65 9.2 16.33
2010 18.21 4.21 -23.56 -6.842011 15.47 15.99 0.13 9.14
Growth Rates of Refined Petroleum Products
12
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
200
400
600
800
1,000
1,200
Year
Volu
me /
MT
1985
1990
1995
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Year
Valu
e/
Rs.
Million
Furnace Oil Annual Sales Volume (MT)
Furnace Oil Annual Sales Value (Rs/Mn)
13
Challenges of the Sri Lanka’s Petroleum Industry
• Rapidly rising overall demand• Petroleum accounts for 24% of import bill and 45% of exports
(2011)• Demand doubled during last three years (in value terms)• More on refined products• More resources required for imports in absolute and relative
terms in the future
14
1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 20110
1000
2000
3000
4000
5000
6000
Country’s Demand for Petroleum ProductsV
alu
e (
US
$/M
n)
Year
15
1980
1985
1990
1995
2000
2005
2006
2007
2008
2009
2010
2011
0
5
10
15
20
25
30
35
40
45
50
Country's Demand – Relative Signif-icance -
% of Exports & Imports
% of Exports
% of Imports
Perc
enta
ge o
f Export
s &
Im
port
s
Year
16
Challenges of the Sri Lanka’s Petroleum Industry
• Sri Lanka: price taker, import quantity being very small
• Periodic price revisions from 2005: upward/downward
- international price trends
- subsidy levels for each product
- CPC’s financial status etc.
17
19
70
19
74
19
79
19
85
19
90
19
95
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
0
20
40
60
80
100
120
1.6
11.6
18.9
28.523.6
17.4
28.328.7
25.129.3
37.4
51.9
65.1
72
97.6
62.6
79.3
110
Crude Oil Imports - Unit Price Movements
C&F Price US$/bbl
Year
C &
F P
rice (
US
$/ B
bl)
International Market Prices and Government Subsidy
19
Import Prices Vs. Domestic Market Prices
20
Challenges of the Sri Lanka’s Petroleum Industry
• State control in pricing during the monopoly era
• Price revision by LIOC on its own or LIOC can follow the government program of revision
• As the largest share of market is with CPC, major price changes by the competitor becomes ineffective
2011 Petrol 80%
Diesel 95%
Kerosene 100%
21
Challenges of the Sri Lanka’s Petroleum Industry
• Increased power supplies to be met from oil based electricity
generation : 2010 - Gwh 10714 of which thermal: 46.7%
2011 - Gwh 11528 of which thermal: 49.9%
• Fuel oil is also subsidized, affecting CPC financial status
• Electricity consumption is subsidized and also regulated
(average unit cost: Rs 15.59 against selling price of Rs. 13.22)
• Stable electricity supply
22
23
2006 2007 2008 2009 2010 20110
2000
4000
6000
8000
10000
12000
14000
51%60% 58% 60%
47%50%
49%40% 42% 40% 53%
50%
Other
Thermal
Year
Ele
ctr
icit
y G
en
era
tion
/GW
h
Year Thermal Other2006 4751 46382007 5865 39502008 5763 41382009 5975 39082010 4994 57202011 5748 5781
Electricity Generation / Gwh
Challenges of the Sri Lanka’s Petroleum Industry
• Refinery provided: entire requirement in 1970s
• 1990s: about one half met from refinery
• 2010: about 35 met from the refinery
• Increasing demand met from imported refined products
(on expenditure basis)
• Change due to: fixed processing capacity and increased
demand
24
Product 1990 2000 2010
Refinery Output 91.5 55 35
Imported Refined Petroleum Products
8.5 45 65
Crude Oil & Refined Petroleum Product Import Ratio
Perc
en
tag
e (
%)
Year
8.5%
91.5%
25
Challenges of the Sri Lanka’s Petroleum Industry
Refinery’s technological limitations:
- built in 1960s
- can accommodate limited crude types
- low yield and value addition
26
Challenges of the Sri Lanka’s Petroleum Industry
• Current tension in the Middle East/supply uncertainties
gulf region: 20% of global petroleum exports
30% LNG exports
• Diversification of sources of supply
- crude oil (technological issues)
27
Thank You
28